Priceline: Surprising International Strength & Continued Domestic Weakness (PCLN)

| About: Booking Holdings (BKNG)
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Mark Mahaney Smith Barney CitigroupCitigroup analyst Mark Mahaney on Priceline's (PCLN) Q4 earnings results:


• PCLN reported an In-Line & In-Line quarter -- $537MM in gross bookings, $204MM in revenue, and $0.28 in proforma EPS vs. our estimates of $523MM, $204MM, and $0.27, respectively. 2006 EPS guidance was generally In-Line with our/Street estimates.

• Fundamentals were mixed -- pro forma bookings growth of 21% Y/Y was a modest deceleration from 22% last quarter, while EBITDA margins (as % of gross profit) declined 50 bps Y/Y to 23.6%.

• We reiterate our Hold rating and $29 price target. Surprising international strength -- proforma Y/Y European bookings growth of 88% vs. 76% last quarter. Continued domestic weakness -- we estimate PCLN accounted for only 6.1% of the U.S. bookings of the leading online travel agencies. While valuation looks reasonable, we believe material structural challenges and slow-growth merchant business warrant caution.


Did PCLN’s fundamentals improve? Yes and no. Organic gross bookings growth (assuming acquired businesses were owned for the full year) of 21% Y/Y was only a slight deceleration from last quarter’s 22%. That’s minimal deceleration, and it’s up substantially from 9% in the June quarter, although that’s a function of the July Bookings B.V. acquisition. EBITDA margin as a % of gross profits was down 50 bps Y/Y to 23.6%.

Were fundamentals better than the Street expected? No. Revenue of $204MM was generally in-line with the Street’s $206MM, EBITDA of $15MM was in-line, and pro forma EPS of $0.28 was $0.01 better

Did the company raise guidance relative to the Street? No. The company provided 2006 pro forma EPS guidance of $1.50-$1.65 vs. Street consensus of $1.56. Gross bookings midpoint guidance of $2.8B is higher than our $2.6B estimate, with International midpoint guidance of $850MM materially higher than our estimate.